The Market System in Action - PowerPoint PPT Presentation

The Market System in Action. Session 3 Professor Dermot McAleese. OUTLINE.  The market system  The role of prices  Demand and supply  Taxes, subsidies and quantitative restrictions  The efficiency of the free market  Free market in the social context. COMPETITIVE MARKET.

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E7The minimum price set by the European Commission for many foodstuffs and dairy products is set above the world equilibrium price. The objective of this price ‘floor’ is to support farm incomes. Use a supply and demand diagram to illustrate the effects of setting the minimum price on a) food prices in the EUb) farm incomes

Demand for cigarettes is insensitive (inelastic) with respect to price, but demand for a particular type or brand of cigarette could be very elastic. Use demand and supply curves to analyse the following:

To encourage better quality cigarettes the government will raise the tax rate on low quality brands while lowering the tax rate on more expensive cigarettes. This is aimed at strengthening the position of bigger producers such as Hongta Group, while pushing many smaller local manufacturers out of business. EIU China Country Report August 2001

Discuss what you would consider to be the main determinants of demand and supply of rented apartments. Suppose the government decides that rents are too high and sets a maximum rent. What would you expect the consequences of this action to be for (a) apartment owners, (b) existing renters and (c) future renters?

The government gains revenue by imposing a sales tax. Who stands to lose the most, the consumer or the producer or both?

E6. (a) Consider the economic consequences of a prohibition on the consumption of alcohol. What happens to the supply curve? What happens to the demand curve? How will the prohibition affect equilibrium consumption and price? What further indirect effects are likely to follow? (According to some writers, prohibition is likely to raise the level of violence by increasing the marginal benefits and lowering the marginal costs of breaking the law.)

(b) Suppose the head of an anti-drugs enforcement agency reports, as evidence of the agency's success in deterring drug users, that the street price of drugs has fallen. Is this evidence conclusive? What other factors might have caused the fall in price?

Use demand and supply analysis to illustrate the effects of China’s removal on restrictions on imports of automobiles. Import tariffs on automobiles will fall to 25% by mid 2006 from present level of 70-90%.